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Groupon is going to find itself in serious trouble soon due to an unsustainable business model and will be folding within the next 12-18 months?

I guess that's only if you find them to be disingenuous enough not to chase their adjusted revenues of US$312.9 million with an investment. What the article seems to be ignoring is that Groupon is still turning a profit. While it's not insane, it's still money. Investors aren't stupid when it comes to money and they'll simply adjust their plans for the IPO. I wager they'll cut the IPO planning in half and then a little extra for misleading people. But come on, this is Wall Street! Is anyone completely

If a net loss of over $100 million per quarter counts as "profit", then yes, Groupon is turning a profit.

Groupon is losing money, facing growing competition, and has a questionable business model. The restating of revenue is just icing on the cake. They should have taken the billions Google offered them when they had the chance.

If that was all - here is their filing below.RESTATEMENT
The Company has restated its previously issued Consolidated Statements of Operations for the years ended December 31, 2008, 2009 and 2010 to correct for an error in its presentation of revenue.
Most significantly, the Company restated its reporting of revenues from Groupons to be net of the amounts related to merchant fees. Historically, the Company has reported the gross amounts billed to its subscribers as revenue. All prior perio

So not only did they change their revenue recognition policies, they also had an "error" which is separate. And then they had to restate revenues from their loyalty programs and credit card payments.

No, the "error" was just the presentation of revenue as gross rather than net of merchants' fees. Presumably their auditors didn't think it incorrect at the time, and in fact it is normal accounting practice to show revenues as goss, and then show merchants or credit card fees as expenses.

I guess that's only if you find them to be disingenuous enough not to chase their adjusted revenues of US$312.9 million with an investment. What the article seems to be ignoring is that Groupon is still turning a profit.

But as an investor, why would you trust these guys to use your investment wisely?

"Groupon raised a total of $946 million in two funding rounds last winter. It kept $136 million of it help run the money-losing company. The remaining $810 million was paid out, via stock purchases, to CEO Andrew Mason and some of his backers, including Eric Lefkofsky, and, notably, the Samwer brothers, who sold their CityDeal company to Groupon in 2010."

Groupon is going to find itself in serious trouble soon due to an unsustainable business model and will be folding within the next 12-18 months?

Indeed. Groupon is in the same position that its retailer-customers are in: hooked on a ponzi-esque cycle of always needing another round of groupon signups. Businesses issue a groupon when they need the cash up front, and then later they get hit with the lossy customers, and need to do another groupon. Groupon itself seems to be in a similar situation.

In fairnes to Groupon, it seems like financial markets haven't yet worked out the right way to do valuations of companies like Groupon. Groupon is trying to explain that they have great potential that isn't quantifiable using GAAP. Everybody is mocking them for it, but how are they supposed to look good according to rules that were drawn up for brick-and-mortar, inventory-and-shelving companies?

Actually the same problem is writ even larger on the whole financial world. Because there is no GAAP way to express the value of customer loyalty, employee loyalty, brand loyalty, and so forth, MBAs come in and squander those precious things in order to increase items that GAAP does know how to express. "Look, realized earnings are up 12% this quarter because we moved production to China and in two years our customers will all leave when they realize we make junk now, where's my bonus?"

Because there is no GAAP way to express the value of customer loyalty,

Dude, I wish you the best of luck. Loyalty is the hot ass you crave after wedding the invisible hand.

Corporations bent on cultivating the next quarterly earnings report don't hold much enduring appeal to informed consumers wishing to build relationship equity with non-human entities. Where does the loyalty come to rest in this system? With suckers, if you can find them?

Because there is no GAAP way to express the value of customer loyalty,

Dude, I wish you the best of luck. Loyalty is the hot ass you crave after wedding the invisible hand.

Corporations bent on cultivating the next quarterly earnings report don't hold much enduring appeal to informed consumers wishing to build relationship equity with non-human entities. Where does the loyalty come to rest in this system? With suckers, if you can find them?

I agree that loyalty between a human and a corporation is, as a rule, farcical. And I am totally with you on the cynicism about the current socioeconomic patterns in the West.

There are exceptions, though. Not all corporations have reached the point of behaving 100% sociopathically. Some of them are still colored by the founders' personality. That coloration can be trusted -- certainly not 100%, and not forever, but not 0% either.

Also, corporations are not monolithic homogenous entities. I consider th

There are somewhat established ways to estimate the value of such intangibles under GAAP or IFRS. The issue here is that Groupon seems to be a volatile startup and the inputs for determining these values are fscked.

Now it's more an indicator on a company's balance sheet of how much it has overpaid for something, or overvalued something. For example, if they have paid huge dot-com money for some new start up, but the financials of that start up are nowhere near the value the company paid for it, the difference must be put on the acquiring company's balance sheet as goodwill. Because balance sheets always have to net out to 0, when you pay more for someth

A balance sheet is just that. It has to balance out. Instead of 3 - 4= -1, a loss is shown above the line. 3 - 4 + 1 = 0 Accounting is for accounting for where the money went. Goodwill is just a way of clarifying a loss.

Now it's more an indicator on a company's balance sheet of how much it has overpaid for something, or overvalued something. For example, if they have paid huge dot-com money for some new start up, but the financials of that start up are nowhere near the value the company paid for it, the difference must be put on the acquiring company's balance sheet as goodwill. Because balance sheets always have to net out to 0, when you pay more for something than it's worth, they have to put something in there to balance it out. Goodwill.

So, I've always looked at it as a negative.

Goodwill arising from an actual purchase is different from goodwill you just make up out of thin air because you think your "brand" is worth x billion dollars and you want to try to bring future profit potential onto your balance sheet..

If you purchae a company for ten billion and acquire actual assets of two billion, you can either write the eight billion off as a loss (which would fuck up your current year's profits) or else call it goodwill and leave it on your balance sheet as an intangible fixed ass

if they aren't valuable in a traditional sense, then how? seems to me,

1. it's becoming generally known that businesses rarely make $ from their service.2. there is no brand loyalty to groupon.3. they can be easily duplicated / copied.

and finally,

4. unreliable profit stream. the businesses that seek their service do so because they need a quick cash influx. unfortunately, those are the same type of businesses that are likely to default on their debts. they are essentially in the business of making high-risk

Also -- Groupon's business model sucks, and it was obvious from Day 1; this is why competitors with business models that don't require the huge customer acquisition costs that Groupon does have sprung up, and why such competitors are, well, competitive -- we may not have the marketshare, but if we keep our costs down, we don't need Groupon's huge (expensive!) marketshare to be profitable, either.

In fairnes to Groupon, it seems like financial markets haven't yet worked out the right way to do valuations of companies like Groupon. Groupon is trying to explain that they have great potential that isn't quantifiable using GAAP. Everybody is mocking them for it, but how are they supposed to look good according to rules that were drawn up for brick-and-mortar, inventory-and-shelving companies?

The only relevant GAAP issue would be if Groupon tried to introduce their "potential" and "customer loyalty" into their acccounts as non-purchased goodwill.

Meanwhile, in the real world, you value companies on their future profits, and if Groupon can't deliver these, they will fail.

When Facebook produce their annual accounts, they don't get to add in £100bn (or whatever the current valuation is) of future goodwill as profit. Investors/the stock market may value their shares as they like, that do

After the Groupon is USED, not sold. The coupon will always be presented prior to being paid out. And if accounts over the web are to be believed, sometimes Groupon does not pay out at all (i.e. they charge a 100% commission on some Groupons).

Well, the Titanic sunk bow-first, so I think you meant "stern is already high in the air." For a car analogy, how about, "the wheels are coming off"? Or, to coin a phrase, "the auditors found the nitrous bottle and demanded it be taken out".

Nah. The government is gonna give them a $500 million 0% interest loan first. They won't fold until all the money has been transferred to a few execs offshore accounts. And that will take at least 2 years...;)

It may not have been too big a deal, they are basically reporting the same numbers as before, they just aren't using the clever trick where they treat a coupon they make appear from nowhere as something that had a cost to create.

Still that is illegal and highly unethical to not follow GAAP accounting principles. Yes they cleared it which would prevent legal action, but any accountant there with Groupon on their resume will have difficulty finding another job. Accountants lose their CPA for that shit.

Revenue and sales are very different. I vew it as promising to pay vendors 60 days later so they can report and give the impression of double earnings and sales growth! They counted money owed to customers which is not sales and now 2

So, it would be like Walmart reporting sales instead of profit? Yeah, "same numbers" alright.

No, Groupon's profit stays the same. Using made up numbers, if originally you had 450 million sales, 200 million direct costs and 400 million overheads, you had a 150 million loss. Restated you have 325 million sales, 75 million direct costs and 400 million overheads, still leaving you a 150 million loss.

You haven't "lost" 125 million sales anywhere. Logically, the value of the company shoul dbe unchanged, as profits haven't altered, it's just psychologically the company doesn't seem as big.

As I said about Zynga [slashdot.org], linked in and all of these other IPOs riding the FB's coattails (which didn't even go IPO yet), this is BS.

This is another bubble, it's because people want to buy FB stock, but they can't, so it's easy to just build any on-line services, have it lose a bunch of money, but have large revenues without any profits, and then just hope to take it to IPO based on revenue alone, without any real working business plan behind it. It's just another Wall street scam.

Today's deal is 50% off popular deal site GroupOn! Ever wanted to own your own website that uses quirky ad copy to sell local services at 50% off of double the retail price? Is owning a website that was the cat's pajamas 3 months ago up your alley, assuming alley cats wear 3-month-old pajamas? If so, this deal is for you!

The basics are the underwriters pay the company floating for the stock and then they try and sell the stock for what they can get. So it is obviously in the underwriter's interests to price the stock properly in the first place. The problem I see for the underwriters is everyone knows what a dog this company is so how do you price it. It appears most trading activity will be short selling - predicting the price will tank which seems like a reasonable guess. I expect the underwriters would not want to fund t

I've never used Groupon. But I've used Gilt and a few of the other ones. No judgement here, but I think it's sort of interesting that they get so much press. Maybe I'm an outlier.

Also I'm sort of torn on this stuff... I've used these discount websites maybe 10 times over the last couple years. 75% of the time I feel like I got a good deal (though I bet the vendor doesn't) but the other 25% of the time services aren't really what was advertised and I leave sort of feeling like a sucker. Not that I was ripped

Thing is, those websites (and Groupon in particular) are getting a bit of a reputation.

Local business gets approached by Groupon. The deal is: make a fantastic offer (around 70% off); of the remaining 30% you charge, you keep half, Groupon keep half.

In theory, you turn the influx of customers (that you're heavily subsidising) into regulars. In practise, lots of businesses have found the sort of customer who comes in on a Groupon deal is the sort of customer who never under any circumstances would even dream of coming back at full price.

Beautifully said. The businesses also get over-crowded with new (one-time) Groupon customers, and their regular customers suffer. I've never seen a restaurant in Chicago offer a Groupon more than once.

> In practise, lots of businesses have found the sort of customer who comes in on a Groupon deal is the sort of customer who never under any circumstances would even dream of coming back at full price.

That is the key problem, yes. You can get customers used to discounts - and in fact Groupon has already achieved exactly that. To be honest, the fact that a business offers the same service for 15% of the standard price is an admission if there ever was one that the standard price is way too high.

In theory, you turn the influx of customers (that you're heavily subsidising) into regulars. In practise, lots of businesses have found the sort of customer who comes in on a Groupon deal is the sort of customer who never under any circumstances would even dream of coming back at full price.

You say that like it's somehow either the new customers' or Groupon's fault.

If you don't want an influx of customers paying less than your regulars, don't use Groupon.

Please. This is a company co-founded by Eric Lefkovsky. Some of us haven't forgotten Halo/Starbelly from the first dot-com bubble. Apparently he's working his magic yet again. The slight-of-hand doesn't even appear to be so very different from the 2001 state-of-the-art.

Well, judging by the cheerleading tone and the "Tour Groupon, The Funniest Startup We've Ever Been To (PHOTO TOUR)" link at the bottom it looks like msnbc has some issues staying objective on Groupon, so I'd take that article with a grain of salt.

I still can't believe this guy didn't sell out to google. I hope he's managed to put every penny he's gotten so far into the bank, because he lost his only shot at ever being a billionaire. Just as an anecdotal sidenote: two years ago every time my wife talked about getting some sort of deal it was groupon this, groupon that. Now her and her friends have 5-10 different sites they peruse for group deals. These guys have already lost the magic: they are no longer the "facebook" of group deals, and as such

My money is on Groupon's knowledge that Google's due diligence would uncover the rotten underbelly of their business and thus the deal would never have gone through and Groupon would be exposed. Much safer to bilk investors with "On The Internet" fever.

Eric Lefkofsky is supposedly already a billionaire, though quite how much of that is based on his Groupon stock I don't know. Even if Groupon went bankrupt tomorrow he's already pulled hundreds of millions from the company so he'll not exactly be poor. You know all that investment Groupon got? Best part of a billion bucks? Yeah, that was mostly used to cash out the early investors, Lefkofsky included, at massively inflated stock prices.

The big point that everybody seems to be missing is: how could Groupon possible be losing money unless the founder is pocketing every last nickel? Their revenues are *massive* (50% of every "groupon") sold, and their costs are... what? A web site? An office? Groupon is a Bernie Madoff-sized scam. Personally, I hope the IPO goes through, because I'm going to short the hell out of it about one day after it happens.

Their costs are advertising to local businesses in the cities they operate in. These customer acquisition costs are greater than the revenues they receive from them, and after they have experienced their first groupon influx they tend not to go back for more.

The business owners I've spoken with have all spent numerous hours talking with Groupon representatives, sometimes in person. There are lots of costs that aren't apparent to outsiders. I wish there was a way to have a daily deal that didn't funnel so much money to a distant company, but I am not about to enter such an overhyped market now.

how could Groupon possible be losing money unless the founder is pocketing every last nickel?

Funny you should say that... they had a round of outside investment and raised close to a billion dollars. Of which, $100 million went to keep the business running, and ~$800 million went to the founders pockets as a phony stock buyback. So to be fair, the founder and his friends are only pocketing 9 out of every 10 nickels.